Having money, or the potential to make money, comes with the unfortunate flip-side of having the potential to lose money. A lot of money. That's where insurance comes in. There are a plethora of insurance types and options within those types, which become tricky to sort out. They can also be very expensive. In the last couple months, this is where I've been spending a lot of mental energy, trying to sort out the optimal insurance balance.
Disability Insurance
Disability insurance is required for 99% of people. The only people who shouldn't buy disability insurance are those who could afford to retire right this second and be completely financially secure. At this stage, this pretty much just means people who are independently wealthy. For those near the end of their careers, who are continuing to work out of interest more than financial need, and have their retirement amply well-financed, disability insurance might also be worthwhile to stop purchasing, since those individuals can simply retire in the event of a disability.
Physicians have high current or future incomes, but those incomes require us to be able to work. If we can't work, we lose that income and, in many cases, are stuck with a lot of debt or an unaffordable lifestyle. Disability insurance means that if you can't work, you can still live comfortably while you recover or transition out of the workforce entirely. You should have as much of it as possible, as soon as possible, so that your income stays as close to your working income if you become disabled. Insurers are smart though, and realize that if workers can get paid as much or more than they currently do if they become disabled, it provides a strong incentive to become disabled, so no insurer will give you disability insurance that covers your full income. The immediate thought then is to get multiple lines of disability insurance, but insurers are one step ahead there too - they'll only pay out a maximum amount collectively, meaning that if you have $X amount of coverage with one insurer and $Y amount of coverage with another insurer, you won't get $X+Y in payouts, you'll get whichever of $X or $Y is higher. That usually means it makes sense to have only a single disability insurance provider.
The first disability insurance most of us will be offered is through our provincial medical associations. In Ontario, the OMA offers rather cheap disability insurance to medical students without a medical, which is worthwhile to take. There are some private options, but they're unlikely to be advantageous in terms of cost, so sticking with the association insurance through medical school is fine for most people. Once in residency, the landscape changes slightly. Association insurance continues to be quite cheap and is generally worth maintaining through residency. However, in most provinces, residency comes with an automatic, employer-provided disability insurance that lasts through residency. It's not terribly great insurance, relatively speaking, and it goes away as soon as residency is done, but it's mandatory. One big advantage with these mandatory, employer-provided disability insurance plans is that in Ontario at least, their benefits are not mutually exclusive with the association coverage. Residency basically breaks the rule that says disability should not be profitable above current salary, though the benefits are still far less than what a fully-qualified physician should make.
Once residency finishes, association plans become expensive, opening up the door for privately provided disability insurance. These private plans aren't cheaper per se, but they come with one major advantage - guarantees. Association plans are owned by the association. Their fees could change, their benefits could change, and you as a client cannot stop it individually. Associations do work on behalf of their members and therefore do not have much cause to agree to a worse deal. If anything, provincial medical associations tend to improve the terms of their deals over time, so this problem is more theoretical than real. Yet, private plans are owned by you, individually, and cannot change for any reason whatsoever. Fees won't change, benefits won't change, nothing can change. The downside of private plans is that they typically require a medical, which could result in higher rates, and will require a year or two of payments before any pre-existing conditions are covered. This simply means that a period of crossover with the association plans is necessary to ensure continuous disability coverage. At this point association vs private insurance is a matter of preference and comfort, mostly between the guaranteed association coverage that does not necessarily require a medical, or private insurance that does not require faith in the provincial medical association to behave appropriately.
Life Insurance
At some point, you will die. That'll suck. If you die before you retire, you may leave behind some people who were relying on you to earn money. This can be a spouse, stuck with your student debt or a mortgage, children who were counting on you to provide for their future, or other dependents like elderly parents who need some financial help in their day-to-day lives. If you have any of these people in your life, you need life insurance. If you don't, you probably don't need life insurance.
Once again, in Ontario, the OMA provides life insurance for students, this time for free, and it's perfectly adequate for medical school for pretty much anyone who does not have children or other dependents. Life insurance is otherwise pretty independent of stage of training. You need some, it doesn't particularly matter who provides it, as long as it covers whatever costs you'd need to cover in the event of your death. It should be term life insurance, which is generally cheap and expires after a set period of time, at which point you can buy insurance for another term (if you need it). It'll generally be more expensive when you renew because you're older and more likely to die at that point, but that's pretty much unavoidable.
There are other forms of life insurance which can technically last forever, meaning they'll pay out eventually, but they're expensive and generally not worthwhile. They cost you more when you're alive than they'll pay to your estate when you die - you might as well just save that money and invest it. Insurance is meant to lose you money, on average, to guard against an unlikely-but-disastrous outcome. Dying young, which is unlikely, is exactly what insurance is meant for. Dying ever, which is 100% going to happen, is not what insurance is meant for.
Home and Auto Insurance
Do you have a home? A car? Buy insurance for them. They're expensive and you need them.
Other Insurance
There's insurance for just about anything. It comes in all shapes, sizes, costs, and terms. You don't need most of it. You might need some of it, depending on circumstances. In general, you should have insurance for anything expensive you own that you couldn't afford to replace if it got destroyed. That includes yourself. Disability and life insurance cover the "you" part pretty well, but supplementary health insurance might be worthwhile too. Home and auto insurance cover your major personal assets, but you may have other personal property to protect, as well as professional assets such as office space. These individual needs should be discussed with a professional and considered with the following question in mind - can I easily afford to lose the thing I am insuring? If you can, insurance probably isn't necessary. If you can't, it probably is.
One important "other" insurance to mention is insurance on debt. This can be insurance on a line of credit, on a credit card, or on a mortgage. Avoid this insurance like the plague. This type of insurance protects the bank in the event you default on your loan. It's for the bank's benefit, not your's. The guard for yourself against defaulting on these loans is the disability and life insurance you should already have. That's there for you, it goes to you, and it should cover your debts.
Yikes this post got long. Insurance is important, but my apologies for rambling! I will follow-up with some hopefully-shorter thoughts on planning major life expenses to wrap up this impromptu series on finances.
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